Q3 2024 Oil-Dri Corporation of America Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the third fiscal 24 earnings discussion. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today, Dan Jaffee, President and CEO. Please go ahead.
Good day, and thank you for standing by and welcome to the third fiscal 'twenty four earnings discussion at this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you didn't hear an automated message advising your hand is race.
To withdraw your question. Please press star one again, please be advised that today's conference is being recorded.
Now like to hand, the conference over to your speakers today, Dan Jaffee, President and CEO. Please go ahead.
Daniel S. Jaffee: Thank you and welcome everybody. With me today in a variety of different places through the miracle of modern science, we have Susan Kreh, CFO and CIO, Aaron Christiansen, VP of Operations, and Wade Robey, VP of Ag and President of Amlin International. Chris Lamson, Group VP of Retail and Wholesale, Laura Scheland, Chief Legal Officer and Vice President and General Manager of the Consumer Products Division, Bruce Patsey, VP of our Fluids Purification Group, and Leslie Garber, Director of Industrial Relations. And she will walk us through the Safe Harbor program.
Daniel S. Jaffee: Great. Thank you and welcome everybody are with me today in a variety of different places through the Miracle Modern science, we have Susan Craig <unk>, CFO and CIO, Aaron Christiansen VP of operations Wade <unk> VP of <unk>, and President of Ameren International Chris lamps and group.
Daniel S. Jaffee: V P of retail and wholesale Laura Sheila and Chief Legal Officer, and Vice President and General manager of the consumer products Division Bruce pay T V. P of our fluids purification groups and Leslie Garber director of Investor Relations and she will walk us through the safe Harbor provision.
Leslie A. Garber: Thank you, Dan. Welcome, everyone.
Daniel S. Jaffee: Thank you Dan and welcome everyone on today's call comments may contain forward looking statements regarding the company's performance in future periods actual results in those periods may materially differ in our press release and in our SEC filings, we highlight a number of important risk factors trends and uncertainties that may affect <unk>.
Leslie A. Garber: On today's call, comments may contain forward-looking statements regarding the company's performance in future periods, but actual results in those periods may materially differ. In our press release and in our SEC filings, we highlight a number of important risk factors, trends, and uncertainties that may affect our future performance. We ask that you review and consider those factors in evaluating the company's comments and in evaluating any investment. Before we begin, I'd like to note that we posted two slides on our website that can be found on both the investor landing page, as well as under our events tab for this webcast. We will be referring to these slides during the call, so please pull them up on your screen. Now, I'll turn the call back to Dan.
Daniel S. Jaffee: Future performance, we ask that you review and consider those factors in evaluating the company's comments and in evaluating any investment in oil dry stock.
Daniel S. Jaffee: Before we begin I'd like to note that we posted two slides on our website that can be found in both the investor landing page as well as under our events tab for this webcast, we will be referring to these slides during the call. So please pull them up on your screen.
Speaker Change: Now I'll turn the call back to Dan.
Daniel S. Jaffee: Great. Thank you, Leslie. And before I turn it over, I would like to make some general remarks.
Daniel S. Jaffee: Okay, great. Thank you wisely and before I turn it over I would like to have some general remarks first of all we're gonna be here for 45 minutes today.
Daniel S. Jaffee: First of all, we're going to be here for 45 minutes today, which is to allow us to cover our acquisition in detail. So Chris Lamson will walk us through that after Susan walks us through some highlighted financial results, and then we'll have the full Q&A like we always do. So that's fantastic. I want to highlight one thing because I don't want to steal Susan's thunder, but we have made $30,901,000 in net income through nine months, which is more than any fiscal year we've ever had in our 84-year history. And last year was an all-time record of $20,551,000, and that was for all 12 months.
Speaker Change: As a allow us to cover our acquisition.
Speaker Change: Details so Chris Williamson will walk us through that after Susan walks us through some highlights financial results and then walk before Q&A like we always do so so that's fantastic.
Speaker Change: Why don't highlight one thing because I don't want to steal Susan's Thunder, but we have made $30.901 million of net income through nine months, which is more than any full year, we've ever had.
Speaker Change: In our 84 year history and last year was an all time record of 25 51 and that was for all 12 months. So we're four 5% ahead of last year and we're playing with the house's money in the fourth quarter. So the team has continued to do a fantastic job of.
Daniel S. Jaffee: So we're 4.5% ahead of last year, and we're playing with the house's money in the fourth quarter. So the team has continued to do a fantastic job of creating value from sorbent minerals. We want to thank our customers who allow us to provide that value to them. And obviously, those strategies are working.
Speaker Change: Creating value from sorbent minerals and want to thank our customers, who allow us to provide that value to them.
Speaker Change: And obviously those those strategies are working and what Youll see is that our legacy business is really carrying the day.
Susan Marie Kreh: And what you'll see is that our legacy business is really carrying the day. And our focus on animal health, our commitment has never been stronger. We're completely committed to the business, but it takes a while to get it up and running. And while we are confident we'll finish ahead of last year, we're still not seeing the year-over-year growth that we know will hit once that snowball starts rolling, but we're also making advances. So we're still very confident in animal health. Susan, at this point, I'd like to turn it over to you to walk us through the financial results.
Speaker Change: And our you know.
Speaker Change: Our focus on animal health.
Speaker Change: Commitment has never been stronger we're completely committed to the business. It takes a while to get it up and running and while we are confident will finish ahead of last year, we're still not seeing the year over year growth that we know will hit once that snowball starts rolling but we're also making advances so so still very confident in animal health.
Susan Marie Kreh: Susan at this point I'd like to turn it over to you to walk you through the financial results.
Susan Marie Kreh: Thank you, Dan. And good morning, everyone.
Susan Marie Kreh: Thank you Dan and good morning, everyone, it's really exciting to be here today and to share with you. Some of the details of our strategic acquisition of the Altra pet business.
Susan Marie Kreh: It's really exciting to be here today and to share with you some of the details of our strategic acquisition of the Ultra Pet business. On several of our previous investor calls, we've been asked about our appetite for acquisitions, and we've consistently stated that we're financially prepared to execute an acquisition that is aligned with our core strategy. On an ongoing basis, we've been monitoring the market and assessing various acquisition opportunities as they've become available. And in the case of Ultrapet, strategic alignment and the value of the acquisition vis-a-vis the price we paid made this business very interesting to Oil-Dri. I'll touch more on the Ultrapet acquisition in a few minutes.
Susan Marie Kreh: And several of our previous Investor calls, we've been asked about our appetite for acquisitions and we've consistently stated that we are financially prepared to execute an acquisition that is aligned with our core strategies.
Susan Marie Kreh: On an ongoing basis, we've been monitoring the market and assessing various acquisition opportunities as they become available.
Susan Marie Kreh: And in the case of Altra pet strategic alignment and the value of the acquisition vis vis the price. We paid made this business very interesting the oil dry.
Susan Marie Kreh: But first, I will highlight a couple of brief financial points from our fiscal third quarter, knowing that most of you have read our press release. If you do have any questions on our reported results following my comments, please feel free to ask them during our question and answer session that will follow Chris Lamson's remarks. For our fiscal third quarter, consolidated net sales reached 106.8 million, a 1% increase over the prior year, making this the 12th consecutive quarter of year-over-year sales growth.
Susan Marie Kreh: I'll touch more on the Altra pet acquisition in a few minutes, but first I will highlight a couple of brief financial points from our fiscal third quarter, knowing that most of you have read our press release.
Susan Marie Kreh: If you do have any questions on our reported results. Following my comments. Please feel free to ask them. During the question and answer session that will follow Chris lamps in his remarks.
Susan Marie Kreh: For our fiscal third quarter.
Speaker Change: Validated net sales reached $106 8, million% to 1% increase over the prior year, making this the 12th consecutive quarter of year over year sales growth.
Susan Marie Kreh: Higher prices and an improved product mix were partially offset by lower volume. In prior calls, Dan discussed our focus on producing and selling higher-value products, such as renewable diesel products, under the initiative that we refer to internally as Miningball, or our mining company version of Moneyball.
Higher prices and improved product mix were partially offset by lower volumes.
Speaker Change: In prior calls Dan has discussed our focus on producing and selling higher value products, such as renewable diesel products.
Speaker Change: Under the initiative that we referred to internally as mining ball or our mining company version of money ball.
Susan Marie Kreh: Our fiscal third quarter benefited from this ongoing focus as we experienced elevated sales of higher-value fluid certification and cat litter products, including co-packaged items. The third quarter of fiscal 2024 consolidated gross profit was $30.1 million, a 10% increase over the prior year. Growth margins expanded to 28% in the third quarter of fiscal 2024, from 26% during the same quarter of the prior year. The increase was driven by the higher selling prices I mentioned a minute ago across multiple products, as well as an improved product mix.
Speaker Change: Our fiscal third quarter benefited from this ongoing focus.
Speaker Change: We experienced elevated sales of higher value wood.
Speaker Change: Application and cat litter products and creating co packaged items.
Speaker Change: The third quarter of fiscal 2024 consolidated gross profit was $30 1 million.
Speaker Change: 10% increase over the prior year.
Speaker Change: Gross margins expanded to 28% in the third quarter of fiscal 2024 from 26% during the same quarter in the prior year.
Speaker Change: The increase was driven by the higher selling prices I mentioned, a minute ago across multiple products as well as improved product mix during.
Susan Marie Kreh: During the three months ended April 30th, the domestic cost of goods sold per ton increased by 3%, and those cost increases were driven by labor, repair costs, depreciation, and freight costs compared to the prior year. Lower packaging and natural gas costs partially offset cost increases in the former category.
Speaker Change: During the three months ended April 30.
Speaker Change: Domestic cost of goods sold per ton increased by 3% and those cost increases were driven by labor repair costs.
Speaker Change: Appreciation and freight costs compared to the prior year.
Speaker Change: Lower packaging and natural gas costs, partially offset cost increases and the farmer categories.
Susan Marie Kreh: Selling general and administrative expenses during the quarter were $19.7 million compared to $13 million during the third quarter last year. This $6.7 million increase reflects an increase in compensation, and advertising expenses, as well as transaction costs related to our acquisition of Alter Pet Company, Inc. The higher compensation costs were driven by increased performance-based incentives as well as a few key planned headcount additions. Advertising expenses were significantly higher in the third quarter compared to the same period last year, although the majority of the prior year's expenditures took place during the fourth quarter. So that's a timing issue.
Speaker Change: Selling general and administrative expenses during the quarter.
Speaker Change: Were $19 7 million compared to $13 million during the first quarter third quarter last year.
Speaker Change: This $6 7 million increase reflects an increase in compensation.
Speaker Change: And advertising expenses as well as includes transaction costs related to our acquisition of <unk>.
Speaker Change: Altra Pet Company, Inc.
Speaker Change: The higher compensation costs were driven by increased performance based incentives.
Speaker Change: As well as a few key planned head Count addition.
Speaker Change: Advertising expenses were significantly higher in the third quarter compared to the same period last year.
Speaker Change: As the majority of the prior year's expenditures took place during the fourth quarter. So that's a timing issue.
Speaker Change: Oil dry does expect advertising costs for the full year of fiscal 2024 to be higher than fiscal year 2023.
Pat: Additional expenses related to the integration of Altra, Pat are expected to be incurred during the fourth quarter of fiscal 2024, and then taper off as we enter fiscal 2025.
Susan Marie Kreh: Oil-Dri expects advertising costs for the full year of fiscal 2024 to be higher than fiscal year 2023. Additionally, expenses related to the integration of AlterPET are expected to be incurred during the fourth quarter of fiscal 2024 and then taper off as we enter fiscal 2025. Now let's hit a couple of points related to cash. Year over year, cash and cash equivalents are up substantially from $29.7 million at the end of the third fiscal quarter of 2023 to $46.8 million at the end of the third fiscal quarter of 2024.
Pat: Now, let's take a couple of points related to cash.
Pat: Year over year cash and cash equivalents are up substantially from $29 7 million at the end of the third fiscal quarter of 2023 to $46 8 million at the end of the third fiscal quarter of 2024.
Susan Marie Kreh: Of that $17 million increase, $10 million relates to the issuance of notes payable that were issued to support the funding for the Ultrapet acquisition. And I'll cover more details on that in a moment when I talk about acquisition financing. As we've discussed on previous calls, we continue to invest in our manufacturing facilities to replace our aged infrastructure in order to provide reliable capabilities to service our customers. We see the tangible benefits of this investment and of our targeted inventory build in our historically high service levels to our customers.
Pat: Of that $17 million increase $10 million relates to the issuance of notes payable.
Pat: We issued to support the funding for the Ultra pet acquisition and I'll cover more details on that in a moment when I talk about acquisition financing.
Pat: As we've discussed on previous calls we continue to invest in our manufacturing facilities to replace our aged infrastructure in order to provide reliable capabilities to service our customers.
Pat: We see the tangible benefits of this investment end of our targeted inventory build in our historically high service levels to our customers.
Susan Marie Kreh: Year-to-date, we've invested $24 million in capital expenditures compared to $17 million in the prior year, ensuring modern and reliable production capabilities and supporting our growth. And those remain key goals for our capital allocation. Now, I shift gears to the acquisition of Ultrapack.
Pat: Year to date up to $24 million, that's $24 million in capital expenditures compared to $17 million in the prior year, ensuring modern modern and reliable.
Pat: Production capabilities and supporting our growth and those remain key goals for our capital allocation.
Pat: If I shift gears to the acquisition of Ultra Pat.
Susan Marie Kreh: On May 1, 2024, Oil-Dri successfully completed the $46 million acquisition of privately held Altrapet Company, Inc., a prominent supplier of silica gel-based crystal cat litter based in Anderson, South Carolina. This acquisition occurred during our fiscal fourth quarter. The structure of the deal was a stock purchase, with Oil-Dri acquiring all of the issued and outstanding shares of the capital stock of Ultra Pet. The purchase was financed with a combination of $26 million of cash on hand, the issuance of $10 million in aggregate principal amount of notes that actually occurred during the third quarter, and a $10 million advance under our existing credit agreement, which occurred during the fourth quarter. So we crossed quarters with the financing of this acquisition. At closing, Ultra Pet became a wholly owned subsidiary of UltraDry.
Pat: On May one 2024 oil drive successfully completed the $46 million acquisition of privately held Ultra Pet Company Inc.
Pat: A prominent supplier of silica gel based crisp catheter based in Anderson South Carolina.
Pat: This acquisition occurred during our fiscal fourth quarter.
Pat: The structure of the deal was a stock purchase with oil dry acquiring all of the issued and outstanding shares of capital stock of Ultra pet.
Pat: The purchase was financed with a combination of $26 million of cash on hand.
Pat: The issuance of $10 million in aggregate principal amount of notes that actually occurred during the third quarter.
Pat: And a $10 million advance under our existing credit agreement, which occurred during the fourth quarter. So we crossed quarters with the financing of this acquisition.
Speaker Change: At closing Altra, Pat will become became a wholly owned subsidiary of ultra dry.
Susan Marie Kreh: This acquisition strengthens Oil-Dry's position as one of the largest cat litter producers in North America and helps to fast-track entry into the rapidly growing crystal litter segment. We anticipate that the Ultrapad acquisition will be accretive from day one, inclusive of transaction costs. In our third quarter results, transaction-related costs of $900,000 were included. We anticipate a similar level of costs during the fourth quarter and then a significant tapering off of these costs as we enter fiscal 2025.
Speaker Change: This acquisition strengthens <unk> position as one of the largest cat litter producers in North America and helps to fast track entry into the rapidly growing crystal litter segment.
Speaker Change: We anticipate that the ultra pet acquisition will be accretive from day, one inclusive of transaction costs.
Speaker Change: Included in our third quarter results.
Speaker Change: Transaction related costs of $900000.
Speaker Change: We anticipate a similar level of cost during the fourth quarter and then a significant tapering off of these costs as we enter fiscal 2025.
Susan Marie Kreh: From a timing and detail standpoint, we issued the notes that I mentioned earlier, Series D Senior Notes, at 6.47% for $10 million pursuant to the shelf facility provisions of our note agreement with Prudential Affiliates. These notes, which were issued on April 30th, 2024, at a fixed rate financing, are payable in two tranches of $5 million each in 2032 and 2033. Then the following day, we drew $10 million on our $45 million revolving credit facility with BMO Bank.
Speaker Change: From a timing and detailed standpoint, we issued the note.
Speaker Change: As I mentioned earlier.
Speaker Change: Series B senior notes.
Speaker Change: At 647% for $10 million pursuant to a shelf facility provisions of our agreement with Prudential affiliates.
Speaker Change: These notes that were issued on April 30th 2024.
At a fixed rate financing are payable in two tranches of $5 million each in 2032 and 2033.
Then the following day, we drew 10 million on our $45 million revolving credit facility with BMO Bank.
Susan Marie Kreh: This is the only draw on this credit facility at this point in time, leaving us ample flexible financing capacity. This $10 million draw is a third subsequent for fiscal third quarter and will be in our financials when we file our fourth quarter results in October of this year. Our draw with BMO is subject to a variable adjusted SOFR-based rate plus a margin that varies depending on our debt-to-earnings ratio. So to provide some transparency, as of April 30, 2024, the variable rate would have been 5.33% for the adjusted SOFR-based rate.
Speaker Change: This is the only draw on this credit facility at this point in time.
Speaker Change: Leaving us ample flexible financing capacity.
Speaker Change: $10 million draw a third subsequent to our fiscal third quarter and will be in our financials. When we filed our fourth quarter results in October of this year.
Speaker Change: Our draw with BMO is subject to a variable adjusted sulfur based rate plus a margin that varies depending on our debt to earnings ratio.
Speaker Change: So to provide some transparency as of April 32020 for the variable rate would've been 5.33% for the adjusted Sofer bass Strait.
Susan Marie Kreh: Our credit agreements, both the one with Prudential and its affiliates and BMO Harris Bank, contain two financial covenants, which are the same aligned across both agreements. Following the draws to finance the Ultrapet acquisition, not only are we fully in compliance with these covenants, but we have significant financing capacity remaining based on our current financial situation and the calculation of the covenants. Just a couple of other wrap-up comments on cash. On an ongoing operational basis, we target cash-on-hand needs in the range of $10 to $15 million.
Speaker Change: Our credit agreements, both the one with Prudential and its affiliates and BMO Harris Bank.
Speaker Change: Contains two financial covenants, which are the same airlines across both agreements.
Speaker Change: Following the draws to finance the ultra pet acquisition not only are we fully in compliance with these covenants, but we have significant financing capacity remaining based on our current financial situation and the calculation of the covenants.
Speaker Change: Just a couple of other wrap up comments on cash on an ongoing operational basis, we target cash on hand needs in the range of $10 million to $15 million.
Susan Marie Kreh: With the $10 million draw on our $45 million revolving credit facility, we have more than ample access to cash to fund our ongoing operations if we were to need it. The key thing I would like listeners to take away is that following the acquisition of UltraPet, Oil-Dri remains well-positioned to invest in growth opportunities. And as for our cash priorities, they continue to be investing and reinvesting in our business with a focus on future growth opportunities while maintaining our existing asset base.
Speaker Change: With the $10 million draw on our $45 million revolving credit facility, we have more than ample access to cash to fund our ongoing operations, if we were to need it.
Speaker Change: The key thing I would like listeners to take away is that following the acquisition of ultra pet oil dry remains well positioned to invest in growth opportunities and as for our cash priorities. They continue to be investing and reinvesting in our business with a focus on future growth opportunities, while maintaining our existing.
Speaker Change: Asset base.
Susan Marie Kreh: They include supporting our dividends, which we have increased for 21 years straight, and maintaining enough financial strength to support strategic M&A, which I just outlined. We've still got plenty of financial capacity if additional targets were to become available. Finally, we occasionally repurchase shares of our stock. Year to date, though, the only share repurchases that we have made have been to repurchase shares returned by our teammates to pay taxes under our restricted shares program. We have not repurchased any shares in the open market. So with that, I'll turn this conversation over to Chris Lamson to discuss our acquisition of our Ultrapet business.
Speaker Change: They include supporting our dividend, which we have increased for the 21 year straight.
And maintaining enough financial strength to support strategic M&A, which I just outlined we've still got plenty of financial capacity as additional targets were to become available.
Speaker Change: Finally, we opportunistically occasionally repurchase shares of our stock year to date, though the only share repurchases that we have made have been to repurchase shares returned by our teammates to pay taxes under our restricted shares program, we have not repurchased any shares in the open market.
Speaker Change: So with that I'll turn the conversation over to Chris lamps and to discuss our acquisition of Altra pet business.
Christopher Lamson: Thanks, Susan. And good morning, everybody.
Speaker Change: Thanks, Susan and good morning, everybody.
Christopher Lamson: I'd like to spend some time discussing ultra repetitive Susan just did more from a financial perspective, we'll shift gears to more of an operational perspective.
Christopher Lamson: I'd like to spend some time discussing UltraPET as Susan just did, more from a financial perspective, then we'll shift gears to more of an operational We've really received, through Leslie, a good number of questions regarding the transaction. So my comments are really based on weaving the answers to your question through the comments as I proceed. We posted two slides on our Oil-Dry Investor website under the Events tab. In a few minutes, I'll actually be referring to those slides, just really two slides. So take a look, pull them out if you can, and it'll help the story come to life.
Speaker Change: We've received really through lastly, a good amount of questions regarding the transaction. So my comments are really based on the answers to your questions.
Speaker Change: Through the comments as I proceed with.
Speaker Change: We posted two slides on our oil dry investor website under the events tab.
Speaker Change: A few minutes I'll actually be referring to those slides just really two slides so taking a look pull them up if you can and it will help the story come to life a bit.
Christopher Lamson: Let me first tell you a little bit more about Ultra Pet. They're a small privately held company located in Anderson, South Carolina, actually not far from Clemson. And we have 18 new teammates down there.
Speaker Change: Let me first tell you a little bit more about ultra pet they're a small privately held company located in Anderson, South Carolina actually not far from Clemson.
Speaker Change: We have new 18, new teammates down their ultra pets, a prominent supplier of silica gel.
Christopher Lamson: Ultra Pet is a prominent supplier of silica gel base cat litter with net sales of approximately $24 million. Some of you have asked about Ultra Pet's EBITDA. But, as you know, we really don't disclose operating earnings at a principal product level.
Speaker Change: <unk> cat litter with net sales of approximately $24 million. Some of you asked about ultra pets EBITA, but as you know, we really don't disclose operating earnings at our principal product level. So we won't be disclosing that numbers will really be a principal product level.
Christopher Lamson: So we won't be disclosing that number, but it will really be a principal product level under our consumables category. For some background, Ultra Pet was a pioneer in the alternative cat litter market and really the pioneer of the crystal cat litter market, with their Litter Perls brand, which they introduced in the US all the way back in 1998. So already a strong similarity to Oil-Dri, who innovated the lightweight category some 10-12
Speaker Change: Under our consumables catheter division.
Speaker Change: For some background ultra Pat was a pioneer in the alternative cat litter market and really the pioneer of the Crystal Cat litter.
Speaker Change: With their litter pearls brand, which they introduced in the U S. All the way back in 1998, so already a strong similarity to oil Brian who innovated.
Speaker Change: The lightweight category. Some 10 12 years later.
Christopher Lamson: Ultra Pet has expanded its product portfolio to include additional brands such as Ultra Pearls, Neon Letter, which is kind of fun, as well as many private label cat litter products focused, of course, on Christmas. While they do sell a few related accessories such as cat toys and cat or pet bowls rather, we made the decision to exclude those durable items from the purchase. There are a few alternative letter items that Ultra sells that we will assess over the next year to ensure that we can compete and win in those in those smaller segments. Ultra Pet sells to customers both domestically and internationally through e-commerce. Pet Specialty, and Grocery Brick-and-Mortar Retail Store.
Speaker Change: Ultra has expanded its product portfolio to include additional brands such as ultra pearls Neon letter, which is kind of fun as well as many private label cat litter products focus of course our principles.
Speaker Change: While they do sell a few related accessories, such as cat toys on cap our pebbles, rather we made the decision to exclude those durable items from the purchase.
Speaker Change: There are a few alternative litter items the ultra sells that we will assess over the next year to ensure that we can compete and win in those in those smaller segments.
Speaker Change: Ultra sells to customers, both domestically and internationally through E Commerce pet.
Speaker Change: Pet specialty and grocery brick and mortar retail stores.
Christopher Lamson: Like other silica gel cat litters sold in the U.S., Ultra Pets Crystal Litter is currently manufactured in China by a couple of strategic suppliers. These suppliers, I've visited them, are really well kind of end-to-end integrated, extremely well-capitalized, and really they operate very impressive supply chains and have been solid long-term partners of Ultrafast. The Ultrapet teammates are particularly skilled and have strong knowledge of sourcing from overseas and will obviously partner with the Oil-Dry team to develop options that mitigate geopolitical risk going forward.
Like other silica gel cap letters.
Speaker Change: Hold in the U S. Ultra pest Crystal litter is currently manufactured in China by a couple of strategic suppliers. These.
Speaker Change: These supplier visited them are.
Speaker Change: Well kind of end to end integrated extremely well capitalized and really they operate very impressive supply chain and have been solid long term partners of ultrafast.
The ultra <unk> teammates are particularly skilled and have strong knowledge of sourcing from overseas and we'll obviously partner with all of our it team to develop options that mitigate geopolitical risk going forward.
Christopher Lamson: Since these products are co-manufactured in China, we did not acquire any significant hard assets with the deal. We pursued this acquisition, and I'm about to get to those slides, by the way, we pursued this acquisition really for two key reasons.
Speaker Change: Since these products are co manufactured in China, we did not acquire any significant hard assets with the deal.
Speaker Change: We pursued this acquisition and I'm about to get to those slides by the way. We pursued this acquisition really for two key reasons first as an entry into the rapidly growing crystal cat litter segment of the market and second for really it's extraordinary strategic fit and I might add cultural fit as well.
Christopher Lamson: First, as an entry into the rapidly growing crystal cat litter segment of the market. And second, for really, it's an extraordinary strategic fit, and I might add cultural fit as well, with the oil dry litter business and, indeed, the oil dry company. So first, let's discuss how the acquisition allowed us to enter and really fast-track our ability to get into the crystal litter segment. Please refer to the first slide of the two slide deck that I mentioned.
Speaker Change: The oil dry litter business and really the overall company overall.
Speaker Change: So first lets discuss how the acquisition allowed us to enter and really fast track our ability to get into the Crystal literacy segment. Please.
Speaker Change: Please refer to the first slide of that to slide deck that I've mentioned as.
Christopher Lamson: As you can see, the crystal cat litter market has and is continuing to experience tremendous growth; segment sales have increased five times. Over the last five years, pretty easy math, about $60 million, up to about $300 million in the segment. And while I can't share specifics on Ultra Pets' Historic Sale, I can tell you that their revenue growth has been, Transcripts provided by Transcription Outsourcing, LLC. The crystal segment has increased more than any other segment within cat litter in terms of the percentage change and share and has led share gains for five years in a row.
Speaker Change: As you can see the crystal cat litter market has.
Speaker Change: And is continuing to experience tremendous growth segment.
Segment sales have increased five times over the last five years pretty easy math about $60 million up to about $300 million in the segment.
And while I can't share specifics on ultra perhaps historic sale I can tell you that their revenue growth has been.
Speaker Change: Extraordinary over this over this timeframe as well.
Speaker Change: Crystal segment has increased more than any other segment within cat litter in terms of a percentage change and share.
Speaker Change: Lead share gains for five years in a row.
Christopher Lamson: In addition, the crystal form has accounted for over 23% of all growth in the cat litter segment over the last five years. From a volume perspective, crystals have accounted for approximately one-third of total cat litter gains, and you can see on the chart, the five-year CAGR at 25% compares really favorably to all other alternative cat litters, such as, you know, say, water positions as natural, but really more renewable, natural litters.
Speaker Change: In addition, the crystal form as accounted for over 23%.
Speaker Change: All of the growth in the Cat litter segment over the last five years from a volume perspective crystals are accounted for approximately one third of total cat litter gains and you can see on the chart at the five year CAGR.
Speaker Change: At 25%.
Speaker Change: Compares really favorably to all other alternative cat litter cat litters such as.
Speaker Change: Say, what order position does natural but really more renewable natural letters.
Christopher Lamson: So by far the biggest grower within the alternative space, and we think a lot of that has to do with the extraordinary efficacy of the product. Going back to the charts on the slide, in the past 52 weeks, crystal volumes have grown over 18%, which is well ahead, about eight times ahead of all the other letter sites. So you can see a fantastic growth story and fantastic momentum. You may be thinking that if crystal litter has grown so much over the last few years, it must be taking share away from clay cap litter products. So what about our base?
Speaker Change: By far the biggest grower within the alternative space, we think a lot of that has to do with the extraordinary efficacy of the product.
Speaker Change: Going back to the chart on the slide in the past 52 weeks Crystal volumes have grown over 18%, which is well ahead about eight times ahead.
Speaker Change: All the other letters segments. So you can see fantastic growth story and fantastic momentum.
Speaker Change: You may be thinking that crystal letter has grown so much over the last few years and must be taking share away from clay cat litter products. So what about our base and of course in this deal is very important to continue to pay attention to our base business. So while the dynamics mathematically true it is.
Christopher Lamson: And of course, in this field, it's very important to continue to pay attention to our base. So while this dynamic is mathematically true, it is taking share from clay. Clay is still driving more than 60% of the strong category growth in the category. Said differently, the litter category is really strong enough to keep its base growing, even as new forms come in and take some market share. Now, when compared to heavy late scoopable or coarse litters, both crystals and lightweight are looked at over a period of time, and we shared this with our investors at our digital investor day every year.
Speaker Change: Is taking share from clay clay is still driving more than 60% of the strong category growth in the category.
Speaker Change: Said differently the cat litter category is really strong enough to keep its base growing even as new forms come in and take some market share.
Speaker Change: Now when compared to heavyweight superbowl or of course letters.
Speaker Change: Both crystal and lightweight looked at over a period of time and we've shared this in our investor and our digital Investor Day every year.
Christopher Lamson: Lightweights are outpacing those segments within clay, and now we're in the fastest growing overall segment. So, really, if you pull back and think about it, both lightweight and crystals are the two most growing segments, A, in overall litter in crystals, and lightweight is the fastest growing within clay.
Rates outpacing those segments within clay and now we're in the fastest growing overall segment.
Speaker Change: So really if you pull back and think about it.
Speaker Change: <unk> lightweight and crystals.
Speaker Change: Our.
Speaker Change: The two most growing segue.
Speaker Change: Segment, a an overall litter and crystal and lightweight is and the most fastest growing.
Speaker Change: Within play so we love the fact that we have a strong market position in the fastest growing segments of the overall litter category.
Christopher Lamson: So we love the fact that we have a strong market position in the fastest growing segments of the overall litter category. I'd add that really both Lightweight and Crystals do what I've found in consumer goods, sustainable long-term innovations do. They drive value that consumers are willing to pay for at a premium cost per use, which is really good for category expansion and particularly good for our retailers. Now I'd like to focus on how crystal litter fits into our current strategy, and to answer that, I'll be referring to the second slide in the presentation. The big part of the acquisition is Ultra Pets. Fit with our existing litter business and strategy, really is that we believe there's extraordinary value in lightweight Crystals are the essence of life.
Speaker Change: I would add that really both lightweight and crystals do what I found in consumer goods sustainable long term innovations do they drive value that consumers are willing to pay for at a premium cost per use which is really good for the category expansion.
Speaker Change: And particularly good for for our retail partners.
Speaker Change: Now I'd like to focus on how crystal litter fit into our current strategy and the answer that we'll be referring to the second slide in the presentation.
Speaker Change: A big part of the acquisition as ultra pets that with our existing litter business and strategy.
Chris: We believe there is extraordinary value and lightweight litter products Chris.
Speaker Change: Crystals are light and <unk>.
Christopher Lamson: In fact, they're about 40% lighter than our lightweight clay litters and a fraction as heavy as the heavyweight guys, yet with extraordinary efficacy, particularly in the area of odor control. Given this very light density, consumers get more uses per weight. This focus on lightweight, as you know, and we've been talking about, is the absolute bullseye of our consumer messaging for our existing clay products. So it's quite easy to see how that great efficacy and lightweight message that we're driving really fits with crystals right into our existing consumer. Another commonality between the companies is our plan to grow to really grow the econ channel and grow with the econ channel.
Speaker Change: There are about 40% lighter than our lightweight clay letters and a fraction of heavy as the heavyweight guys. Yes.
Speaker Change: Yes, with extraordinary efficacy, particularly around odor control given this very light density consumers get more usage per weight.
Speaker Change: This focus on lightweight as you know we've been talking about is the absolute bull's eye of our consumer messaging for our existing quite products. So it's quite easy to see how that great.
Great efficacy and lightweight.
Speaker Change: Message that we're driving really fit with crystals right into our existing consumer messaging.
Speaker Change: Another commonality between the companies is our plan to grow.
Speaker Change: Really grow the E com channel and grow with the E Com channel.
Christopher Lamson: Both Oil-Dry, Lightweight, and Ultra products are e-comm friendly. In general, that lighter density, and this is true of all retailers, that lighter density of both lightweight clay litter and crystals products makes it possible to transport nearly two times as many units on every truck going to our retailers. That less weight on the truck and fewer trucks on the road mean greater fuel efficiency and reduced emissions, of course.
Speaker Change: Both oil dry lightweight and altra products, our E comm friendly in general that lighter density and really this is true of all retailers that lightweight density of both lightweight <unk> litter and crystals products make it possible to transport nearly two times as many units on every truck going to our retail.
Speaker Change: That less weight on the truck and fewer trucks on the roaming greater fuel efficiency and reduced submissions of course for E. Commerce. This benefit is really not much more point yet.
Christopher Lamson: For e-commerce, this benefit's really that much more poignant as those costs extend all the way down to the shopper's front door. So, a huge benefit for e-com customers, of both the lightweight business and the crystal. Further, the higher cost per use and higher unit price allows e-com retailers to effectively spread their cost of picking, packing, and shipping over a higher per sale unit.
Speaker Change: Those cost extend all the way down to the shoppers front door, so huge benefit for E Com E comm customers.
Speaker Change: Both the lightweight business and the crystals business.
Speaker Change: Further the higher cost per use and higher unit price allows E comm retailers to effectively spread their cost of picking packing and shipping over a higher sales unit price.
Christopher Lamson: Part of our combined strategy is to grow via both branded and private label product offerings. We'll use our marketing expertise to elevate Ultra Pets branded items as we do with our own branded clay products. And remember, they share those comments and the consumer benefit. Lightweight and strong ethics will fuel the Ultra Pet brand where it's strong, and at some point in the very near future, we'll launch a crystal litter under the Cat's Pride brand.
Part of our combined strategy is to grow via both branded and private label product offerings.
Speaker Change: We will use our marketing expertise to elevate ultra pets branded items as we do with our own branded play products and remember they share those comments consumer benefits.
Speaker Change: Lightweight and strong efficacy.
Speaker Change: We will fuel the ultra pet brand, where it strong and at some point in the very near future. We will launch a crystal litter under the Cat's Pride brand name.
Christopher Lamson: As many of you know, Oil-Dri has a very strong presence in the private label lightweight market. We feel that customers will be eager to add crystal litter to their private label lightweight, private label portfolios. With that said, the economics of bringing private label items in via a long-age supply chain does look different than our short time vertically integrated clay supply chain.
Speaker Change: As many of you know oil drive a very strong presence in the private label lightweight market, we feel that customers will be eager to AG crystal litter to their private label lightweight private label portfolios with that said the economics of bringing private label items in via along Asia supply chain does.
Speaker Change: Look different than our short lead time vertically integrated supply chain, so with that in mind, no that our private label offering.
Christopher Lamson: So with that in mind, know that our private label offering will first be premium and, second, of course, be based on sound economics. Value-Based Pricing is important to us, and Ultrapet, much like Cat's Pride, is in fact value-based. Ultrapet crystals are positioned as a price-value-friendly option from the national brand, while delivering outstanding performance. Again, just like our Cat's Pride.
Speaker Change: First be premium and second of course be based on sound economics.
Speaker Change: Value based pricing is important to us and ultra pack much like Cat's Pride is in fact value based alphatec crystals are positioned as a price value friendly option from the national brands, while delivering outstanding performance again, just like our cat's pride business.
Christopher Lamson: As we grow our business, we will continue to innovate as part of our strategy for growth. Both Oil-Dry and Ultra Pet, as I mentioned earlier, have proven track records of disrupting the industry with new products.
Speaker Change: As we grow our business, we will continue to innovative.
Speaker Change: Innovative part of our strategy for growth both oil dry on ultra path as I mentioned earlier have proven track records of disrupting the industry with new products. Both companies have created new segments, which I think is pretty cool.
Christopher Lamson: Both companies have created new segments, which I think is pretty cool. Currently, we plan to leverage our strong relationships with existing customers to grow the Ultrapet business. We have years of experience working with mass merchandisers and grocery retailers, of course, and in the last few years, you've seen us expand into growing distribution channels such as e-commerce, dollar, farm and fleet, and drug. There's some crossover between our customer base, but there's immense potential for us to expand Ultrapet's list of customers. Upon the announcement of the acquisition, the Oil-Dry sales team immediately started working with the Ultrapet team to help close some sales opportunities. We were really in line for a review.
Speaker Change: Okay.
Speaker Change: Currently we plan to leverage our strong relationships with existing customers to grow the ultra pet business. We have years of experience working with mass merchandiser mass merchandisers and grocery retailers of course and over the last few years, you've seen us expand into growing distribution channels of <unk>.
Speaker Change: Congress dollar farm and fleet and drug.
Speaker Change: There is some crossover between our customer base, but there is immense potential for us.
Speaker Change: And ultra pest list of customers.
Speaker Change: Upon the announcement of the acquisition the oil drives sales team immediately started working with the ultra pack themed close some sales opportunities we were really in line review season.
Christopher Lamson: And we have a few wins already forthcoming with some midsize, and but a very important grocery, we actually acquired one at one what I'll call a super regional grocery chain, the combined oil dry and ultra pet businesses make up their largest cat litter vendor as tracked in retail sales by a meal. As you can imagine, I'm pointing this account out to the rest of our sales teams as really a rallying cry for what we can do, for the growth that lies ahead of us.
Speaker Change: And we have a few wins already forthcoming with some mid size.
Speaker Change: But a very important grocery accounts with the accent acquisition.
Speaker Change: At one one what I'll call Super regional grocery chain, the combined oil dry and ultra pet businesses makeup their largest cat litter vendor as track and retail sales by Nielsen.
Speaker Change: As you can imagine I'm pointing this out this account out to the rest of our sales teams.
Speaker Change: As really a rallying cry for what we can for the growth that lies ahead of us.
Christopher Lamson: Finally, with the announcement of a few key national customers, of course, we were going to reach out to them, but before we could even reach out to them, they reached out to us to proactively schedule a meeting to discuss opportunities that come along with our expanded portfolio. Well, we entered the acquisition with a primary focus on growth. We do see some synergies that should benefit both us and our customers. For example, we see an opportunity to co-load products to common customers, which should drive efficiency and further reduce truckloads, especially important in this freight-intensive category.
Speaker Change: Finally, with the announcement a few key national customers of course, we're going to reach out to them before we could even reach out to them reached out to us proactively schedule meetings to discuss opportunities that come along with our expansion of our expanded portfolio and the Brussels.
Speaker Change: While we entered the acquisition with a primary focus on growth, we do see some synergies that should benefit both us and our customers, we see opportunity to cobalt products to common customers, which should drive efficiency and further reduce truckloads.
Speaker Change: Especially important in this freight intensive category, we also expect to leverage selling and marketing expenses.
Christopher Lamson: We also expect to leverage selling and marketing expenses. However, I do want to emphasize that it's really this growth opportunity that we see with the category, combined with the category and our strong presence and penetration with retailers and that brand fit that will drive the majority of the value of the deal. I hope that I've provided answers to your questions that you were looking for. I think we've done everything that we've been asked to do so far. But certainly, if you have additional questions, we'll now open the floor up to Q&A and add them to the online console.
Speaker Change: However, I do want to emphasize it's really this growth opportunity that we see with the category.
Speaker Change: And combining the category and our strong presence and penetration with retailers and that brand fit that will drive the majority of the value of the deal.
Speaker Change: I hope that I provided in answers to your questions.
Speaker Change: You were looking for I think we've been everything that we've been asked to date.
Speaker Change: But certainly if you have additional questions. We will now open the floor up to Q&A and you can add them into.
Speaker Change: The online console.
Leslie A. Garber: Great, thank you, Chris. Yes, and please submit your questions using the Ask a Question field on the webcast and click Submit. We have a few in the queue right now.
Speaker Change: Great. Thank you Chris.
Speaker Change: Yes, and please submit your questions using the ask a question field on the webcast and click submit we have a few in the queue right now so I'm going to read them off. The first question comes from Ethan Star.
Speaker Change: Individual investor He asks given the inflation of the last couple of years is there any evidence that more consumers are switching to private label Cat litter Chris.
Leslie A. Garber: So I'm going to read them off. The first question comes from Ethan Starr, an individual investor. He asks, given the inflation of the last couple of years, is there any evidence that more consumers are switching to private label cat litter? Chris, can you answer that, please? Yeah.
Speaker Change: Chris can you answer that please yes.
Christopher Lamson: Yeah, really, it's a good short answer, Ethan. The answer is yes. The private label is showing across the litter category, the greatest share of games of any other manufacturer.
Chris: Yes, it really is a good short answer Ethan the answer is yes.
The.
Chris: The private label is showing across the litter category.
Chris: The greatest share gains of any other manufacturer.
Speaker Change: Okay great.
Leslie A. Garber: Great. The next question comes from John Baer from Ascend Wealth Advisors, and he asks, are you experiencing any headwinds in sales or adoption of your animal health products due to the ongoing outbreaks of avian flu domestically or elsewhere? Wade, can you answer that please? Yes, thank you.
Speaker Change: Great.
Speaker Change: The next question comes from John Bair from ascend wealth advisors and he asks are you experiencing any headwinds of sales or adoption of your animal health products due to the ongoing outbreaks of avian flu domestically or elsewhere.
Speaker Change: Can you answer that please yes, thank you Leslie and thank you John.
Wade Robey: Yes, thank you, Leslie. And thank you, John.
Wade Robey: Excellent question. And it's not just avian influenza but also African swine fever as well, which has predominantly impacted swine markets globally. Neither one of those conditions is one that our product specifically would address. In the case of AI specifically, which I know was part of your question, that is actually what is called a type A virus, for which there really is no treatment other than depopulation. So in terms of product adoption, no, other than our products generally improve the productivity of animals and improve bottom line performance. So a side opportunity, but really not direct.
Speaker Change: Excellent question and it's not just been avian influenza, but also African swine fever, as well, which is predominantly impacted the swine markets globally.
Speaker Change: Neither one of those conditions are ones that are products, specifically would address.
In the case of AI, specifically, which I know was part of your question that is actually what is called a tight.
Speaker Change: Taipei virus.
Speaker Change: Which is there really is no treatment for other than G population. So in terms of product adoption no other than our products generally improve the productivity of animals and improve bottom line performance, so aside opportunities, but really not direct in terms of.
Wade Robey: In terms of headwinds for sales, it has made it a little more difficult to visit customer locations and customer farms. However, biosecurity is obviously very important in the animal production industry. And with outbreaks like AI, which domestically have already caused the depopulation of about 96 million birds, it does restrict our access sometimes to company farms. And so that makes the sales cycle sometimes more challenging, but we've been able to overcome that by calling on customers in different ways.
Speaker Change: The headwinds of sales.
Speaker Change: It has made it a little more difficult to visit customer locations customer farms, Bob Securities, Obviously very important in the animal production industry and with outbreaks like AI, which domestic domestically have caused already the population of about 96 million birds. It does restrict our access sometimes two companies harms and so.
Speaker Change: That makes the sales cycle, sometimes more challenging, but we've been able to overcome that by calling on customers in different ways.
Leslie A. Garber: Great, thank you. We have another question from Ethan Starr. He asks, do you see continued growth for your products in the renewable diesel market?
Speaker Change: Great. Thank you.
Speaker Change: We have another question from Ethan Starr. He asks do you see continued growth for your products in the renewable diesel market.
Speaker Change: Bruce.
Unknown Executive: Yes, yes, there's going to be continued growth in this marketplace. There are several plants being built right now, and we expect over the next two to four years, new plants coming in that will drive sales of our bleaching clay products. Yeah, we're excited about the new industry, and it should help drive growth in our
Speaker Change: Yes.
Bruce Patsey: Yes, theres going to be continued growth in this marketplace. There are several plants being built right now.
Bruce Patsey: And we expect over the next two to four years new.
Bruce Patsey: New plants coming in that will drive sales.
Bruce Patsey: Of our bleaching clay products. So yeah, we're excited about the new industry and should help drive growth in our business.
Speaker Change: Great. Thank you.
Leslie A. Garber: Thank you. Another question again is from John Bear. How did the Ultrapret deal unfold? What was the catalyst for them to join the Oil-Dry family versus any of your larger competitors? Chris, can you answer that please? Yeah, you bet.
Speaker Change: Next question again is from John Bair, how did the ultra pack deal unfold what was the catalyst for them to join the oil price family versus any of your larger competitors.
Christopher Lamson: John, I'm actually really excited you asked the question because I think it's a good story for us to tell. First, I'll go back to our thought processes. We obviously have various management routines, but once a year, Dan gets us together off-site for some strategic planning, and I'll give Susan props. We were looking at market data for our obviously largest category in which we compete across the company, which is Catletter, and Susan was really pressing the issue of, "hey, how do we get into this segment?". Really, we did some work around how we could enter either on our own or via acquisition. Candidly, we identified UltraPet as an acquisition of Pets at Home as probably the best way to do that.
Chris: Chris can you answer that please yeah, you bet, John Im actually really excited.
Chris: Asked the question because I think it is.
Chris: Good story.
Chris: For us to tell first I'll go back to.
Chris: Our thought processes, we obviously have various management routines, but once a year that gets us together off site.
Chris: For some strategic planning and.
Chris: I'll give susan props.
Chris: We're looking at market data in and obviously, our largest category in which we compete across the company, which is cat litter.
Speaker Change: Susan was really pressing the issue of Hey, how do we get into this segment.
Chris: So.
Chris: We did some work around how can we enter.
Chris: Either on our own or or via acquisition.
Chris: Candidly we identified.
Chris: Ultra pad is an acquisition of ultra pet is probably the best way to do that.
Leslie A. Garber: Ironically, and you know, kind of a kind of crazy idea, maybe it, you know, was meant to be within a week, we actually got their book. So, they were, they had put themselves on the market for sale. On the softer side, which may have been what you're so proud that our strategic planning process generates those conversations and gets us thinking and proud of Susan's push. Then, on the softer side, and now that they're our teammates, we've had some more candid conversations around how things transpired on their end.
Ironically in kind of a kind of a crazy maybe it was meant to be.
Chris: Within a week.
Chris: We actually got their book so so they were.
Chris: They had they have put themselves on the market for sale.
Chris: Yes.
Chris: On the softer side, which may have been what year. So so proud that our.
Chris: Our strategic planning process generates those conversations and gets us thinking.
Speaker Change: And proud of Susan's push.
Speaker Change: Then on the softer side.
Speaker Change: And.
Speaker Change: Now that there our teammates we've had some more candid conversations around how things transpired on their end and I'd say the inside as we we actually.
Leslie A. Garber: And I'd say the insight is that we actually weren't necessarily the highest payer that had presented themselves, but we really spent a lot of time in our LOIs and our management meetings talking about culture, expressing how they would fit in and how we would grow the business together. And they would tell you that that's what pushed us to the top of the list. And particularly that cultural overlap and symbiotic cultures, as Dan's talked about a few times with them, are certainly playing out. I'm so proud of the way I think all of our values shine through. They appreciated them, saw the fit, and said, "Thank you.
Speaker Change: Necessarily the highest payer.
That have presented themselves but.
Speaker Change: We really spent a lot of time in rois in our management meetings.
Speaker Change: Talking about culture.
Expressing how they fit in and how we will grow the business together.
Speaker Change: They would tell you that that's what.
Speaker Change: Pushed us to the top of the list.
Speaker Change: And particularly that cultural overlap and symbiotic cultures.
Speaker Change: <unk> talked about a few times with them certainly is playing out so proud of the way, we I think all of our value shine through.
Leslie A. Garber: The next question is from Ethan Starr. What progress is Amlin making? How are trials of Amlin products with potential customers going?
Speaker Change: They appreciated them solve a fit and we rose to the top.
Speaker Change: Yes.
Speaker Change: Great. Thank you.
Speaker Change: The next question is from Ethan Starr.
Leslie A. Garber: Progress is aniline, Megan, making how our trials of aniline products with potential customers going wait im going to turn that one over to you. Thanks, Leslie and thanks again for that question I would say, even even though we've had kind of challenging markets in AG over the last 12 months, certainly we would not see that seen that slowdown.
Wade Robey: Wade, I'm going to turn that one over to you. Yeah, thanks, Leslie.
Wade Robey: Yeah, thanks, Leslie. And thanks again, Ethan, for that question.
Wade Robey: I would say even though we've had kind of challenging markets in ag over the last 12 months, certainly, we've not seen that slowdown in the interest of customers in our products, especially the new products that we're bringing out, like Phylox internationally, Amsure, and NutriPath as well. We have trials going on currently in all world areas. And each time we've entered trials with customers, we've seen good positive responses. It's part of what is the longer sales cycle in animal health. It takes customers' use of the products in the field generally to get to adoption and then commercial activity, and we're excited that those have been continuing with a high degree of customer satisfaction.
Speaker Change: <unk> interest of customers and our products, especially the new products that we're bringing out.
Speaker Change: Life <unk> internationally.
Sure and neutral pass as well we have trials going on currently in all world areas.
Speaker Change: Each time, we've entered trials with customers. We've seen good positive response, it's what's part of what is the longer sales cycle and animal health. It takes customers use of the products in the field generally to get to adoption and then commercial activity and we're excited those have been continuing with high degree of customer into.
Leslie A. Garber: Great, thank you. The next question is from John Bear. Are there other crystal litter manufacturers? Are larger competitors developing this type of product? Chris?
Yes.
Speaker Change: Great. Thank you.
Speaker Change: The next question is from John Bair are there other crystal litter man other crystal that are manufacturers are larger competitors developing this type of product Chris.
Chris: Chris Yes.
Christopher Lamson: Yeah. Thanks again, John.
Chris: Yes.
John Bair: Thanks, again, John So clorox with there.
Chris: Our fresh step brand has actually been in Crystal litter I'll give you a kind of a rough number for over a decade.
Christopher Lamson: So Clorox, with their Fresh Step brand, has actually been in the crystal litter, I'll give you a kind of a rough number, for over a decade, and give or take a few years, if you don't mind there. Pretty Litter, which was an independent company that really started with an online direct-to-consumer subscription model, really candidly lit the segment on fire, I think, with a lot of digital consumer interaction and a big push starting about four or five years ago, and a lot of that growth you see reflected was really what they lit.
Chris: And give or take.
Speaker Change: A few years, if you don't mind, Theyre pretty litter, which was.
Speaker Change: The company that really started with an online direct to consumer subscription model.
Speaker Change: Really candidly lit.
Speaker Change: Look the segment on fire I think a lot of digital.
Speaker Change: Consumer interaction.
Speaker Change: With a big push starting about four or five years ago and a lot of that growth you see reflected was really what what they lit.
Christopher Lamson: And with that growth, Ralston, with the Tidy Cat brand, has also entered the segment. Much like the lightweight segment, we want to see that grow. And our unique positioning is a fantastic price value with great efficacy in the segment, both from a branded perspective and from a private label perspective, which is aligned with Cat Pride. So we like the big guys playing; the big guys are playing, and helping fuel the growth of
Speaker Change: And with that growth.
Speaker Change: Ralston.
Speaker Change: With Tidy Cat brand has also entered the segment.
Speaker Change: Much like the lightweight segment.
Speaker Change: Candidly, we want to see that grow.
Speaker Change: And our unique positioning as a fantastic price value with great efficacy.
Speaker Change: In the segment both from a branded perspective.
Speaker Change: And a private label perspective, which is which is aligned with gas prices. So.
Speaker Change: We like the big guys, playing the big guys are playing in helping fuel the growth of the segment.
Leslie A. Garber: Great. Our next question is from Sean McMahon.
Speaker Change: Great.
Speaker Change: Next question is from Sean Mcmahon.
Speaker Change: Can management please discuss.
Speaker Change: The cash flow ROI, our ROIC expected from the recent acquisition if not how should we evaluate if this acquisition is successful if we won't provide the EBITDA estimates what was the hurdle rate.
Leslie A. Garber: Can management please discuss the cash flow ROI or ROIC expected from the recent acquisition? If not, how should we evaluate if this acquisition is successful if we won't provide the EBITDA estimates? What was the hurdle rate, return expectation, and IRR for this deal? Susan, can you comment on that?
Speaker Change: Return expectation IRR for this deal Susan can you comment on that.
Daniel S. Jaffee: Actually, Leslie, I think I'm going to take this, but Susan's teed me up with some of the details. So yeah, our weighted average cost of capital is just under 9%. It's more of an opinion than a fact, but that's basically the number. And what we always target is an IRR in excess of 15% when we make a major capital investment, and this one meets that criteria. The good news is that I would say there were very few cost synergies put in the model. And really, what we expect is to have one plus one equals three on the market side. And we are already seeing that.
Speaker Change: Actually what I think I'm going to take this but Susan.
Speaker Change: With me up with some of the details so yeah, our weighted average cost of capital is just under 9%.
Speaker Change: It's more of an opinion that effect.
Speaker Change: It's likely the number and what we always target as an IRR in excess of 15% when we make a major capital investment in this one.
Speaker Change: Meets that criteria. The good news is that I would say there were very few cost synergies put in the model.
Speaker Change: And really what we expect is to have one plus one equal three on the market side.
Daniel S. Jaffee: We're seeing a lot of positive responses from our existing customer base wanting crystals. And so I think the combination of Ultra Pet and Cat's Bride has been pretty powerful because they know the supply chain very well. They've got some very established customers and brands out there, but they have some holes in their distribution network, and kind of where they're weak, we are strong. And so together, it should work pretty well and very well, actually. But I always have to caution due to the safe harbor, but I would say, if anything, we are more pleased than we thought we would be from a market receptivity standpoint.
We are seeing that already we're seeing a lot of.
Speaker Change: Positive responses from our existing customer base wanting crystals.
Speaker Change: And so I think the combination of ultra pet and kept fried has been pretty powerful that they they know the supply chain very well they've got some very established customers brands out there, but they had some holes in their distribution network and kind of where they are weak we are strong and so together it should work.
Speaker Change: Pretty well.
Speaker Change: Very well actually but you know I always have to caution due to the safe Harbor, but I would say if anything we are we are more.
Speaker Change: More pleased than we thought it would be from a market receptivity.
Speaker Change: Okay, great. Thank you.
Speaker Change: Next question is from Ethan Star, how much goodwill or intangibles were tied to the oil dry balance sheet with the <unk> acquisition.
Speaker Change: No.
Speaker Change: Sure.
Leslie A. Garber: So, Leslie, you want me to take that one, right? Yeah, sorry. You take that. Absolutely.
Speaker Change: So unless you want me to take that.
Speaker Change: Yeah, Alright, and you take that.
Susan Marie Kreh: Thanks, Ethan, for the question. Well, we just acquired it this quarter, so we have gone through the process of acquisition accounting. We've engaged a third party to do the valuations for us. But it's not that intense of a business. It's probably why you're asking the question, Ethan.
Speaker Change: Absolutely. Thanks season question, well, we just acquired it this quarter.
Speaker Change: So we go through the process, we are well through the process of the acquisition accounting.
Speaker Change: Engaged a third party to do the valuations for us.
Speaker Change: Right.
Speaker Change: Intensive business is probably why you're asking the question Ethan.
Susan Marie Kreh: We expect a good amount of this purchase price to be goodwill. But until we go through the valuation process, I'm not really comfortable giving a definitive number. So we can update you more on where we are in that process when we have our call, our next call in October.
Speaker Change: We expect a good amount of this purchase price to be goodwill <unk>.
Speaker Change: Till we go through the valuation I'm, not really comfortable giving a definitive number. So we can update more on where we are in that process. When we have our call. Our next call in October.
Leslie A. Garber: Great. Thanks, Susan. The next question is from Sean McMahon. How much of management's bonuses could be based on meeting UltraPET's financial expectations? Dan, I'll have you answer that. Sure, Sean.
Susan Marie Kreh: Great. Thanks, Susan.
Speaker Change: Next question is from Sean Mcmahon, how much of management bonuses could be based on meeting ultra pets financial expectation, Dan I'll have you answer that one.
Daniel S. Jaffee: Sure, Sean. Thank you. Good question. And for Fiscal 23, which ends 7-31, I would say none whatsoever that we're tracking against our original plan. And while this one's immediately accretive, the team won't really get benefits from it this year. We're keeping it out.
Daniel S. Jaffee: Sure Sean Thank you good question.
Daniel S. Jaffee: Fiscal 'twenty three with Gen 731, I would say none whatsoever that we are tracking against our original plan.
Daniel S. Jaffee: And while this one is immediately accretive the team won't really get benefit from it. This year, we're keeping it out but it will be fully in the up 24 bonus and budget would start day, one and with all of the expected synergies both on the minor on the cost side. The major on the market side, all in the planning numbers and so.
Daniel S. Jaffee: But it will be fully in the F-24 bonus and budget, which starts 8-1. And with all of the expected synergies, both on the minor on the cost side and the major on the market side, all in the planning numbers. And so we will have to meet or exceed those in order to achieve a good bonus in Fiscal 24. And we're feeling confident about it, but we will hold ourselves accountable, as will the Compensation Committee of the Board of Directors, for sure. There are no other questions in the queue. So we do have just a few minutes left if anyone would like to submit one.
Daniel S. Jaffee: We will have to meet or exceed those in order to achieve a good bonus in fiscal 'twenty four.
Daniel S. Jaffee: And we're feeling confident about it but we will hold ourselves accountable as will the compensation committee of the board of directors for sure.
Speaker Change: Okay. So there are no other questions in the queue. So we do have just a few minutes left if anyone would like to submit any additional questions via the webcast portal. Please do so.
Leslie A. Garber: There are no other questions in the queue. So we do have just a few minutes left. If anyone would like to submit any additional questions via the webcast portal, please do so. And we'll wait about a minute or so. And if not, we will conclude the call. Okay, I don't know. Oh, here's one.
Leslie A. Garber: Nope. Nope. Okay, so all the questions have been answered. Dan, do you want to close it out? Sure.
Speaker Change: And we'll wait about a minute or so and if not we will we will conclude the call.
Okay, I don't know <unk>.
No.
Speaker Change: No.
Speaker Change: Okay. So all the questions have been answered Dan do you want to.
Daniel S. Jaffee: Close it out.
Daniel S. Jaffee: Sure, I'm always passionate about our business, but I'm not going to be falsely optimistic this time. The team and I truly believe the best is yet to come.
Daniel S. Jaffee: Sure.
Speaker Change: I'm always.
Daniel S. Jaffee: Passionate about our business.
Speaker Change: Im not going to be falsely optimistic this time sincerely optimistic the team and I truly believe the best is yet to come.
Daniel S. Jaffee: We're going to see continued growth in the next fiscal year, which starts August 1st, in renewable diesel. We're going to have the ultra-pet acquisition moving in, and we believe very strongly in the animal health business and will continue to see growth there. Our core businesses are all doing well. It's a good time to be creating value from sorbent minerals. As I've said numerous times over the years, if there's no value in sorbent minerals, you should run because that's what we focus on.
Speaker Change: We're going to see continued growth in the next fiscal year, which starts AGA first in renewable diesel we're going to have the ultra pet acquisition moving in and we believe very strongly in the animal health business and will continue to see growth there.
And then our core businesses are all doing well so.
Speaker Change: It's a good time to be creating value from sorbent minerals and as I've said numerous times over the years. If there is no value in <unk> minerals, you should run because that's what we focus on but if there is we're a great investment.
Daniel S. Jaffee: If there is, we're a great investment because that's what we focus on. I hope you all saw that we gave a larger-than-usual increase to our dividend, which is a further commitment and an example of our confidence in the future of the business. We usually raise it every June, a penny a share for a quarter, and $0.04 for the year. We've done that for 21 straight years. This year, we actually raised it by $0.02 in the quarter and $0.08 for the year.
Speaker Change: What we focus on I hope you all saw that we.
Speaker Change: Gave a larger than usual increase to our dividend, which is a further.
Speaker Change: An example of our confidence in the future of the business, we usually raise that every June a penny a share.
Speaker Change: Fourth quarter report for the year, we've done that for 2000 and great year 21 straight years.
Speaker Change: Now this year, we actually raised at <unk> in the quarter and eight for the year.
Daniel S. Jaffee: We're feeling good. We were happy we were able to finance the acquisition with zero equity and over half of it in cash. Again, as Susan said, we still have a lot of dry powder, and we will be disciplined, but if the right deal comes along, we will certainly give it a hard look and hope to bring it in. Thank you. We'll look forward to talking to you guys soon after the next quarter.
Speaker Change: So we're we're feeling good and we're happy we were able to finance the acquisition with zero equity.
Speaker Change: And over half of it in cash.
Speaker Change: So again as Susan said, we still have a lot of dry powder and we will be disciplined but if the right deal comes along we will certainly give it a hard look and hope to bring it in so thank you all look forward to talking to you guys soon.
Speaker Change: After the next quarter.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.
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